The Chicken and the Eggs

From Bill Gross today, “I don’t like bonds; I don’t like most stocks; I don’t like private equity.” Gundlach said practically the same thing last week and now Gross this week. Warren Buffett next week? I won’t hold my breath. In any event, my “Opportunity Set From Hell” post must have struck a chord with the bond kings! With all kidding aside, I couldn’t agree more with Gross and Gundlach and I’m invested accordingly. However, what I don’t understand is if Gross and Gundlach don’t like bonds, why are they still managing bond funds? Are the bonds they’re buying different? It’s the other bonds they don’t like? And if it’s all bonds they don’t like, why own any bonds?

Eight years of emergency monetary policies, ZIRP, and NIRP has certainly caused a lot of people, including professionals, to do some uncharacteristic things  – including buying bonds yielding next to nothing. Maybe Gross and Gundlach can pick fixed income securities that can generate a positive return even after the bond bubble pops. That would be impressive. However, if they say they don’t like bonds and then buy bonds to play the relative return game, that wouldn’t be so impressive.

I’d find it refreshing to see both of them stop playing the relative return game and join the absolute return team. Come on over – there’s plenty of room! If bonds are expensive, sell them. Take a stand against inflated asset prices, manipulated bond markets, and runaway train monetary policies. Maybe I just want a little company, but what I really want to see is a bond vigilante. I’ve read about them and would love to meet one. I continue to ask potential bond vigilantes, if not now, when?

Gross also mentions owning “real assets such as land, gold, and tangible plant and equipment at a discount”. I agree with this also. In fact, while I’m 100% cash in the absolute return strategy I manage (currently just my personal account), I also have exposure to tangible assets. However, I consider these outside of my managed assets, which remain very liquid and in cash (I own zero stocks personally). I believe if I’m going to hold cash in the current Wild West environment of central banking, holding some sort of cash hedge makes sense.

Although I can’t make specific recommendations, in my opinion, whatever a currency holder is most comfortable with and makes sense to them is a good place to start. I have a friend who owns commercial real estate and another that bought a McMansion on the water. Timberland may make sense for some. I used to own a timber REIT, Potlach (PCH) but they have a little too much debt for me now. Gold and silver are options. Farmland sounds interesting. I have a family member who bought recreational land as a cash hedge. Productive improvements to land and real estate (we did this) also makes sense to me. I have another friend who buys and fixes up old cars. Rental properties. There are plenty of options, but it’s up to the individual to decide if it’s necessary or what they’re most comfortable with and most knowledgeable about. Ideally cash holds its value and insurance isn’t necessary, but every time one of these central bankers talk, I can’t help but think their experiments aren’t going to land sunny side up.

I’ve joked with a friend that to hedge against global central bankers we should start a chicken farm. We’d profit handsomely assuming the world’s next reserve currency is the chicken and the egg! The chicken would be a $100 bill and eggs $20 (4 eggs), $10 (2 eggs), and $5 (1 egg). Go ahead and laugh, but you can’t print chickens and eggs. It might be messy paying the cable bill, however.